Australian regulators report that their investigation into unusual currency movements ahead of central bank announcements has found that much of the trading action appears to reflect a normal lack of liquidity at these times, and algorithmic reactions to these conditions, rather than market manipulation.
The Australian Securities and Investments Commission (ASIC) published an update on its investigation into movements in the Australian dollar shortly before the Reserve Bank of Australia’s (RBA) monetary policy decisions for February, March and April. The investigation is focused on trading in the dollar in the minute prior to the release of the RBA’s interest rate decision statement.
“Preliminary findings reveal moves in the Australian dollar ahead of the announcement to be as a result of normal market operations in an environment of lower liquidity immediately ahead of the RBA announcement,” it says. “The reduction in liquidity providers is a usual occurrence prior to announcement in all markets. Much of the trading reviewed to date was linked to position unwinds by automated trading accounts linked to risk management logic and not misconduct.”
The ASIC reports that it has found liquidity being withdrawn from the market at the same time as participants sought to reduce their risk exposure ahead of the central bank announcement. “This lack of liquidity distorted the execution logic in the algorithms of some participant systems,” it notes. “This, along with a fall in trading volumes leading up to the release of key market data, means trades may have had a more pronounced impact on the price than they otherwise would.”
The regulator notes that its enquiries into the cause of the swings in the currency markets are ongoing. “The Australian dollar being ranked the fourth most traded currency pair traded by turnover must be seen to be fair, orderly and transparent,” said ASIC commissioner, Cathie Armour.
“We have a strong regulatory framework that will enforce and give effect to the law if we find issues regarding confidential information or manipulative trading in any market that affects Australia’s well-being,” she added.